Excellent growth potential in SA's R43bn Private Label retail category
Despite tough trading conditions off the back of low economic growth and curbed consumer confidence there is still room for growth within South Africa's R43bn *Private Label retail category. (*Private Label products are sold exclusively by a specific retailer or chain of stores)
These insights stem from the 2017 Nielsen State of Private Label in South Africa report which shows that Private Label (PL) has maintained its growth rate since 2016, with its share of total sales having climbed over 20% in 2017. Although this represents a small 0.2% gain over the previous year, this growth is ahead of branded product sales and is expected to continue into 2018.
Of interest, is the fact that at present the LSM 7-10 markets account for 50% of private label spend but LSM 1-4 has shown double digit growth and an increasing share of spend. This provides an excellent opportunity for the growth of PL within the low to mid LSM groups.
Commenting on the reasons for PL’s potential Nielsen South Africa Head of Retailer Services Gareth Paterson says; “Consumer confidence is down, inflation is up, debt is high, and people are under pressure. Against this backdrop, PL is proving to be a viable, quality option for consumers and we are seeing growth ahead of branded products.
“The fact that PL share has moved over the 20% share of sales mark also shows the country is more willing to try these brands and with more investment into these brands from retailers, we will see this trend continue into 2018.”
No longer the poorer cousin
It’s therefore clear that Private Label products are no longer the poorer cousin of retail - they’re well researched, manufactured, and packaged. They reflect consumers’ appetite for PL brands, catering to their requirement of reasonably priced but quality products, offering a wide range similar to branded products.
“Our study shows that consumer perception around the quality and value of PL products is improving driven by increased innovation and differentiation in the category as compared to three or even two years ago,” states Paterson.
Overall, the biggest incremental gains have occurred in Food categories, with staples showing high value growth, which has been driven through inflation, but again showing that consumers are willing to switch to private label for their staple requirements.
Looking at specific product types, Long Life Milk has passed Individually Quick Frozen (IQF) Chicken as the biggest PL Category in terms of Rand Value sales. Paterson explains; “IQF Chicken was subject to new brining legislation passed in October 2016, which saw an initial negative impact in the category as existing items were phased out - it also had an upward effect on inflation.”
In terms of the categories that have shown the most sales and growth, it’s clear, however, that PL is no longer only about commodity items like long life milk and chicken. In line with this the study found that in terms of PL purchase drivers, quality and value drivers are more favourable, with 38% (versus 27% in 2014) consumers stating that PL products offer good value for money while 37% (versus 31% in 2014) say the quality of these types of products is improving.
This means that despite 69.9% of PL sales still coming from Groceries and Perishables, the category is making rapid in-roads into smaller categories like Confectionery as well as Baby and Personal Care. Baby Care has achieved 28.7% annual value growth versus 5.7% in the branded sector and Personal Care 12.4% versus 6.7% in the branded sector.
Movers and shakers
One of the biggest movers within PL product categories in 2017 are Frozen Prepared Meals which now fall in the Top 10 Private Label categories, with sales of R1.3bn and 25% annual value growth. Part of this stems from a focus by major retail chains on creating quality offerings for singles, couples, and small families and tapping into time-starved nature of consumers’ modern-day lives and their need for convenience. There has therefore been a lot of activity within this category in the last year.
“Commodity categories allow for little differentiation in terms of quality and branding but other categories where there is room for value add are a new place for private label and frozen prepared meals falls perfectly in line with this. Along with cuts in budgets and going out also becoming a luxury, the move of Frozen Prepared Meals to second on the rank of top PL categories is therefore no surprise,” adds Paterson.
Looking ahead Paterson comments that retailers will put increasing effort into their private label products, while ensuring there are quality options available across key categories for consumers. “Variety within categories is also key, and with the focus from retailers on these products and making sure consumers’ needs are being met, as well as there’s increase in willingness to try these types of products, we do expect PL’s share to increase into 2018 and beyond,” he states.
About the Nielsen state of Private Label in South Africa
The study covered 155 categories within 8 Super Groups (Dry Grocery; Perishables; Non-Alcoholic Beverages; Confectionery; Personal Care; Home Care; Baby Care & Health Care) over a period of 36 months, ending May 2017. Results were based on Annual Value Sales and Package/Unit Sales. Due to differences in volumetric measures across categories, only Package/Units are comparable. Data Sources: Nielsen Global Surveys, Retail Measurement Services, Consumer Panel Services, Shopper Trends.
Nielsen Holdings plc (NYSE: NLSN) is a global performance management company that provides a comprehensive understanding of what consumers Watch and Buy. Nielsen’s Watch segment provides media and advertising clients with Total Audience measurement services across all devices where content—video, audio and text—is consumed. The Buy segment offers consumer packaged goods manufacturers and retailers the industry’s only global view of retail performance measurement. By integrating information from its Watch and Buy segments and other data sources, Nielsen provides its clients with both world-class measurement as well as analytics that help improve performance. Nielsen, an S&P 500 company, has operations in over 100 countries that cover more than 90% of the world’s population. For more information, visit www.nielsen.com.
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